Flashback on ECJ Cases – C-254/16 (Glencore Grain Hungary) – Breach of EU law by extending the VAT refund period if a fine has been imposed for non-cooperation and refusal to pay default interest

On July 6, 2017, the ECJ issued its decision in the case C-254/16 (Glencore Grain Hungary).

Context: Reference for a preliminary ruling — Common system of value added tax (VAT) — Directive 2006/112/EC — Article 183 — Principle of fiscal neutrality — Deduction of input tax — Refund of overpaid VAT — Investigation procedure — Fine imposed on the taxable person in the course of such a procedure — Extension of the period within which the refund must be made — Exclusion of payment of default interest

Article in the EU VAT Directive

Article 183 of the EU VAT Directive 2006/112/EC

Article 183 (Right to deduct VAT – Rules Governing Exercise of the Right of Deduction)
Where, for a given tax period, the amount of deductions exceeds the amount of VAT due, the Member States may, in accordance with conditions which they shall determine, either make a refund or carry the excess forward to the following period.
However, Member States may refuse to refund or carry forward if the amount of the excess is insignificant.

Facts

Glencore is an undertaking subject to VAT operating in the grain trade. It lodged an application for a refund with the tax authority for overpaid VAT in the amount of HUF 4 485 975 000 (Hungarian forint) (approximately EUR 12.4 million) in respect of input VAT paid in September 2011.
Following that application and prior to the refund claimed, the tax authority initiated an investigation procedure concerning the legality of the claim. In connection with that investigation, the tax authority sent Glencore numerous requests for data disclosure and imposed three fines on the ground of delay in responding to some of its requests, since the delay in its replies was, according to that authority, found to have obstructed the conduct of the investigation.
On 13 November 2013, the tax authority paid Glencore HUF 1 858 301 000 (approximately EUR 5.9 million) as a partial refund of the overpaid VAT. Glencore requested that authority to pay it HUF 411 910 990 (approximately EUR 1.3 million) as default interest for the period from 4 December 2011, the date on which, according to Glencore, the period for refunding the overpaid VAT expired, to 13 November 2013.
The tax authority rejected the request on the ground that Glencore was fined for obstruction of the investigation of the legality of the claim for a refund and that, consequently, under the applicable Hungarian legislation, the period for a refund of the overpaid VAT and, if applicable, any default interest were to be calculated from the date of the delivery of the formal report containing the findings of the investigation. Accordingly, that authority took the view that there had not been any late payment and, since it was as a result of failure to disclose the data requested that the conduct of the investigation and the refund of overpaid VAT had been obstructed, Glencore was not entitled to default interest.
On 5 November 2015, Glencore brought an action before the Fővárosi Közigazgatási és Munkaügyi Bíróság (Administrative and Labour Court, Budapest, Hungary) challenging the decision of the tax authority refusing its application.
Glencore submitted before that court that the Hungarian legislation, under which the payment of default interest is calculated from the delivery of the formal report closing the investigation procedure relating to the refund of overpaid VAT, is contrary to EU law, in particular, to the principles of proportionality, legal certainty and fiscal neutrality. According to Glencore, the investigation procedure at issue in the main proceedings took more than two years for reasons which were not connected with the late disclosure of the documents requested, but principally with the actions of the tax authority. In addition, the tax authority compelled Glencore to disclose to it a large quantity of data within the first two weeks of that investigation procedure and, upon each request, gave it only three working days in which to disclose the data. According to Glencore, the tax authority should have refunded the VAT claimed within the 45 day period laid down in Article 37 of the Code of fiscal procedure for claims exceeding HUF 500 000 (approximately EUR 1 600). Failing such a refund, that authority was required to pay it default interest. The principle of fiscal neutrality requires that a taxable person may obtain a refund of overpaid VAT within a reasonable period and that the time of that refund cannot be influenced by procedural acts of a tax authority.
The tax authority maintained that Glencore’s action should be dismissed on the ground that the imposition of the fines for the late disclosure of documents necessary to a tax investigation was a result of the wrongful conduct of Glencore and that it is due to Glencore’s negligence that the period for the refund of the overpaid VAT was extended.
The referring court notes that the Court has previously held that the principle of neutrality precludes Member States from making refunds of overpaid VAT subject to conditions which impose an additional burden on taxable persons by affecting their financial situation, that the Member States must ensure that a refund is made within a reasonable period of time and that the conditions governing the refund do not themselves give rise to any financial risk for the taxable person. According to the referring court, the Court has also held that taxable persons who were refunded overpaid VAT after a period which could not be described as reasonable are entitled to default interest and that it is for the legal order of each Member State to lay down the conditions under which such interest must be paid, whilst adhering to the principles of equivalence and effectiveness.
However, the referring court takes the view that the Court’s case-law does not contain sufficiently clear indications, in particular, as to the consequences of fines imposed by a tax authority, such as that at issue in the main proceedings. It considers that to refund Glencore the overpaid VAT within an approximately two-year period, rather than within the normal period of 45 days, infringes the principle of proportionality and, consequently, that Glencore’s claim for default interest must be upheld. The referring court also considers that the fact that the tax authority, by an abusive literal interpretation of the relevant national law, may, by imposing a fine on a taxable person for non-compliance with a duty of disclosure, continue tax investigations without any time limit and without being required to pay default interest amounts to an infringement of that principle.

Questions

Must Article 183 of Directive 2006/112 ¹ be interpreted as precluding national legislation under which the period within which overpaid VAT must be refunded is to be extended up to the date on which the report drawn up following an investigation is delivered in the case where, in the course of a tax investigation procedure initiated within 30 days from the receipt of the application for a refund, a fine is imposed on the taxable person for non-compliance with an obligation?
Having regard to the principles of fiscal neutrality and proportionality, does Article 183 of Directive 2006/112 preclude national legislation under which, in the event of late payment of a sum, payment of default interest is excluded in the case where, in the context of an investigation concerning the refund of that sum, the taxable person was fined by the authority in connection with the obligation to cooperate, even though the investigation, which lasted several years, was significantly delayed for reasons which cannot principally be attributed to the taxable person?
Must Article 183 of Directive 2006/112 and the principle of effectiveness be interpreted as meaning that a claim for payment of interest in connection with tax withheld or not allocated contrary to EU law is a substantive right which flows directly from EU law itself, such that an infringement of EU law is sufficient for a right to interest to be claimed before the courts and other authorities of the Member States?
If, in the light of the answers given to the preceding questions, the referring court should conclude that the domestic legislation of the Member State is incompatible with Article 183 of the VAT Directive, would it be acting in accordance with EU law if it were to take the view that the refusal, in the decisions of the Member State’s authorities, to pay default interest was incompatible with Article 183 of the VAT Directive?

AG Opinion

None

Decision

EU law must be interpreted as precluding national legislation, such as that at issue in the main proceedings, under which, where a tax investigation procedure is initiated by a tax authority and where a taxable person is fined for failure to cooperate, the date of the refund of overpaid value added tax may be delayed until the formal report on that investigation is delivered to the taxable person and the payment of default interest may be refused, even where the duration of the tax investigation procedure is excessive and cannot be attributed entirely to the conduct of the taxable person.

Summary

The EU Court of Justice rules that Hungary is acting in breach of EU law by extending the VAT refund period if a fine has been imposed for non-cooperation. It is also against EU law that Hungary refuses to pay default interest in such cases.

Glencore Agriculture Hungary Kft. is active in the grain trade. For the month of September 2011, Glencore is requesting a refund of approximately €12.4 million in VAT. After the Hungarian tax authorities grant a refund of approximately € 5.9 million in 2013, Glencore requests compensation of approximately € 1.3 million in default interest. According to the Tax Authorities, however, there is no question of delay, and therefore no right to late payment interest. The Tax and Customs Administration points out that Glencore failed to provide the required information during an audit. The tax authorities also point out that fines have been imposed on Glencore, as a result of which the term for the VAT refund has been extended. The Hungarian court is asking questions for a preliminary ruling in this case.

The EU Court of Justice rules that Hungary is acting in breach of EU law by extending the VAT refund period if a fine has been imposed for non-cooperation. According to the EU Court of Justice, it is also contrary to EU law that Hungary refuses to pay default interest in such cases. The Court of Justice of the EU considers that the Hungarian tax authorities only imposed the fine just before the expiry of the refund period for input tax, and that a refund was only made after two years.

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